Thread by @mrjasonchoi

Starting a fund vs. being an angel investor

A thread 👇

0/ Many friends found success investing in crypto with their personal capital this year, and a few have asked me whether they should start a fund.

I'll share some learnings from the past 3 years helping scale a fund from square 1.

1/ ~3 years ago, @TheSpartanGroup launched its fund arm with $10m and 2 people.

Today we manage >$200m across two main funds (liquid + venture), with a 5 person investment team + additional support team.

2/ Many people think starting a fund is:

- Raise fund
- Deploy fund
- Profits

But like most things that's an oversimplification - there's an entire firm-building element missing!

3/ If your primary joy is investing + main goal is to make money doing that, don't start a fund.

You are better off joining an established fund where you can do what you love.

Only start a fund if you have a unique vision for why the fund can deliver value *at scale*

4/ If you do start one, assuming you cost manage responsibly, you may have to personally spend ~50% of your time doing stuff not related to investing.

Stuff like:

- Fundraising/IR
- Finances
- Operations
- Legal
- Marketing
- HR/ hiring

4/ A fund is just like any other businesses. You need to focus on creating scalable processes, not just good investment decisions.

Outside of research/ sourcing, I spent all my time in the first years on:

a. Franchise building
b. Creating scalable processes
c. Plugging holes

5/ On the first point...

In 2018, @TheSpartanGroup had an established advisory business, but its fund business was new.

Being based in HK, to have quality inbound (for hiring, fundraising and deal flow), I knew we needed more recognition.

6/ I studied what worked/ what didn't for funds I respected, travelled relentlessly to build real relationships, then churned out content across all platforms for 12 months.

Whatever we had the highest inbounds from, I doubled down on.

Everything else, I cut.

7/ A screenshot from one of our early internal marketing strategy sessions I led back in 19.

8/ Before long, I realized:

- Most of our quality hiring inbounds for the core investment team came from @theBlockcrunch (due to self selecting audience)

- Many founders knew us from Twitter

So that's where we chose to double down on.

9/ So now, we have a pipeline to start attracting talent and partners.

Onto point two...we now need to create scalable processes that support this growing team.

And sometimes that means championing unpopular decisions.

10/ I'm a firm believer that you should hire the best people and get our of their way.

But I also believe you should rely on people for their strengths...

But first you need to find their strengths.

11/ One of my key initiatives in 2019 was not just to focus on improving my own investment ideas, but to think about how to improve the *process* that led to them, and make them repeatable.

12/ I proposed tracking everyone's individual ideas in detail - by asset, duration, performance (absolute/relative), direction, strategy, and timing (early tracker below, blurred).

This received some pushback early on...

13/ The team's initial worry was that this will lead to overemphasis on individual performance, and disrupt the collaboration needed for our small team.

Over time, it became apparent that it was crucial in allowing us to identify our collective strengths and weaknesses.

14/ Say your fundamentals-driven longs keep underperforming - that's a signal about the type of market we're in, and also your ability to interpret fundamentals.

Say ideas pitched are doing well, but the fund portfolio is lagging - then sizing may be an issue.

15/ Diligent tracking allowed us to also to be extremely personal in evaluating strengths/weaknesses as our team grew.

As a ex-consultant, I was often frustrated with the use of the royal "we" in the workplace.

16/ When you say, "WE could have done better" - you may spare some embarrassment, but no one can learn.

Much better for you to say "*you* effed up specifically on this thing, I'm here to help, let's explore how"

Tracking allowed us to attribute issues to people!

17/ This is just one process I had to help design as head of research. Others include:

- What structure should our pitches take?
- What frequency to balance quality vs. quantity?
- How do we automate screening?
- How do we delegate tasks?
- How do we weigh opinions?

18/ But processes alone are not enough - you also need to constantly maintain a culture that supports them.

For instance, normalizing thinking as working, not stigmatizing mistakes - these are things you need to carry out on a daily basis, in every conversation.

19/ On top of this there's also the third part - plugging holes.

Often times, in the early days of a fund, there are assorted roles that you need to fill before you can scale and delegate.

e.g. Designated risk manager, cybersecurity specialist, compliance...

20/ Note that the above doesn't even cover fundraising (easily 80%+ of your time when closing a fund), trade recon ops/ running hiring/ finances.

All of this is also *on top* of the actual alpha-generating part of your work: investment research + deal sourcing.

21/ In summary...

Starting a fund is as much about building a company from scratch, as it is about being a good investor.

As an investor, your goal must be to get to a point where you can afford to delegate everything that does not relate to investing.

22/ Sometimes that could take years - and sometimes you'll have nothing to show for after that.

If you run a venture fund, you may not know you have failed until 5-10 years in.

23/ If you got to the end of this thread, and this sounds like something you'll still like to tackle, reach out to me - I'd love to help